8 Ways To (legally) Circumvent The NHL Salary Cap

 

In the era of the salary cap ($64,300,000 this season), some NHL teams must juggle with numbers to find a way to stay under the maximum salary payroll allowed by the league and be cap-compliant. Before we have a look at the different ways teams have found to circumvent the salary cap, let’s have a look at different pieces of information about the matter:

First, who counts against the salary cap?

DURING THE SEASON
During the season anyone on a team’s NHL roster counts against the cap. This includes players on the Active Roster, Injured Reserve, Injured Non-Roster and Non-Roster. It also includes players who have a “bona-fide long-term injury” or LTIR as well as players sent to the minors on conditioning assignments (Antero Niittymaki for example) and players placed on waivers (Wade Redden for example) (until such time that they have cleared waivers and are assigned to the AHL). Also included are any deferred salary and bonuses earned as a result of playing in a league year under the new CBA, and any ordinary buyouts (George Laraque for example).

DURING THE OFFSEASON
In the offseason, the following players count:
1. All players on 1-way contracts, regardless of where (or if) they were playing the previous year.
2. All players on 2-way contracts, in proportion to the number of days spent on an NHL roster the previous season.
3. All RFA’s who have been extended a qualifying offer (while the offer is valid), with 1-way QO’s counting in full and 2-way QO’s counting as described in #2.
4. All RFA’s signed to an offer sheet (such players count against the team extending the offer sheet while it is still valid).
5. All ordinary buyouts [those buyouts not executed immediately after the ratification of the current CBA].

Second, who doesn’t count against the cap?

DURING THE SEASON:
Players assigned to the minors – even if on one-way contracts – do not count (as long as they are not on conditioning assignments) as well as players signed to a contract that are in Major Junior hockey (CHL) or overseas (Europe). Players suspended by either the team or the NHL will not count for the duration of the suspension as long as the player is not receiving his salary; however, teams must keep enough payroll space available to be able to accept the player should his suspension end immediately.

DURING THE OFFSEASON:

Players signed to a two-way contract, but who were not on an NHL roster at any point during the previous season, and any player not under contract. That’s it – everyone else counts as described above.

Third, when can teams exceed the Upper Limit?

From the last day of training camp until June 30, the only time teams may exceed the Upper Limit is if a player is placed on the LTIR (Ian Laperriere for example) and replacing the player would put the team over the Upper Limit. The team can replace the injured player with a player with a salary that is lower or equal to that of the injured player. In addition, from July 1 to the last day of training camp, teams may exceed the Upper Limit by no more than 10%.

Teams must also consider performance or signing bonuses earned by players when calculating the team’s overall salary cap, which can become tricky and pose problems to certain teams (The Bruins are a good example as they have a $1.13 million cap penalty, mostly because of bonuses Mark Recchi hit in 2010-11, to fit under the salary cap this season).

Several different ways to circumvent (legally) the NHL salary cap:

NHL Salary Cap

(Bridgetds@Flickr)

1. Put a player on the Long Term Injury Reserve (LTIR):
A player is considered to have a long-term injury if, in the opinion of the team’s doctors, the player has an injury which will cause him to miss at least 10 games and 24 days. The team is allowed to exceed the cap by up to the amount of the injured player’s salary with as many replacement players as needed, provided that when the injured player is activated the team comes into compliance with the cap immediately.

The Philadelphia Flyers used this strategy to stay under the cap by putting Chris Pronger ($4,921,429), Ian Laperierre ($1,166,667) and Blair Betts ($700,000) on the LTIR.

2. Bury a player’s contract into the minors (AHL):
Players assigned to the minors, even if on one-way contracts, do not count against the NHL salary cap. However, the team still has to pay the player full-salary despite him playing in the AHL.

The New York Rangers used this strategy to stay under the cap by sending Wade Redden to Hartford of the AHL. His $6,500,000 annual salary doesn’t count against the cap, but the team still have to pay his full salary.

circumvent the salary cap

(Micheline/SynergyMax)

3. Sign a player to a front-loaded multi-year contract:
The new trend in the NHL is to sign bona-fide free agents to multiyear deals worth millions of dollars, and as way to fit that huge salary under the cap, teams decided to front load the contracts and add several years at the end of the contract to reduce the cap hit of player. We all know that the Kovalchuk Saga was about this type of deal a year ago.

The Buffalo Sabres also used this strategy when they signed rearguard Christian Ehrhoff to a 10-year $40-million contract for a yearly cap hit of $4MM over the entire 10 years. However, he is being paid $10MM this season and $8MM in 2012-13 before his actual salary decreases to $4MM for the following 4 years, then to $3MM in 2017-18. Finally, during the last 3 years of his contract, Ehrhoff will only earn $1M/year. The German blue-liner was 29 years old when he signed the contract, so he would have to play until he is 39 to fulfill the whole contract.

4. Loan a player to an independent team overseas:
A team is entitled to loan one of its player under contract to an independent team overseas for the remainder of his contract. However, the player in question has to approve such a move. The Tampa Bay Lightning and Radim Vrbata agreed to such a loan a few years ago.

The Chicago Blackhawks also used this strategy last season to get Cristobal Huet’s $5.625M salary off the books, and make room under the salary cap. Huet decided to accept his fate and earn big money playing in Europe instead of voiding his actual contract and testing free agency. It was a wise decision by Huet as free agency has not be kind to goaltenders the past few offseasons.

5. Dress less players than the mandatory minimum imposed by the league:
As per the CBA: Except in case of emergency, there shall be no reduction of the required minimum Playing Rosters of the Clubs set at 18 skaters plus 2 goaltenders.

Last season, New Jersey and Calgary were forced to play with less than the minimum required players by the CBA. They had a number of players who were hurt, but were not on the Injured Reserve, and the team did not have cap space to recall additional players to fill their lineup. Had the team placed players on the injury reserve (IR), they could have used the Emergency Recall to call up enough players to fill out the minimum lineup (again subject to the cap), but then they wouldn’t have been allowed to use the players until they completed the minimum period on the IR. Heck, the Devils even played a game with only 15 skaters dressed.

6. Sign a recently drafted player to an entry level contract and make him spend years outside the NHL:

Toni Rajala of the Edmonton Oilers is a good example of this method. The Oilers signed Rajala on July 16th 2009, to a three-year deal that had a cap number of $875,000. Two seasons later, Rajala’s cap number is now down to $816,667 because Rajala spent that year with the Brandon Wheat Kings in the WHL, outside the NHL. Rajala is currently playing with Ilves Tampere of the SM-Liga which means his cap hit will decrease again. Why? Because Rajala was already paid his 10% $87,500 signing bonus at the start of 2009 and thus that money no longer counts against the team cap. He will also receive a 10% signing bonus this season. That’s what we call an entry-level slide.

It means that if or when Rajala plays in the NHL, his entry-level deal will carry a lower cap-hit than if Rajala had began his NHL career in 2009-2010.Had Rajala started the 2011-12 campaign with the Edmonton Oilers, he would have only carried a $816,667 cap-hit instead of the original $875,000 he was supposed to have. That’s why we see more and more entry-level deals signed early as it benefits both the players (they receive a nice signing bonus) and the teams (they can lower their cap-hit if the prospect doesn’t make it to the NHL right away).

7. Sign a free agent for a “reasonable” deal, and all of a sudden the same player signs a huge endorsement deal with a team sponsor:

Suppose the Toronto Maple Leafs sign Zach Parise, slated to become an unrestricted free agent next summer, to a four-year $16MM deal, which would be below his fair market value. Then Air Canada signs an endorsement deal, that remains confidential, with Parise that will pay him $2MM per year during the length of his contract with Toronto. Obviously, Air Canada owns the naming rights to the Air Canada Centre where the Maple Leafs play their home game. Would that be a circumvention of the salary cap?

  • Please note that teams cannot circumvent the salary cap by paying players through other means – such as gifts, reimbursements on expenses, personal deals, money redirected through related corporate entities, separate contracts for marketing and promotion.

8. Acquire a cheaper player with no intention of ever playing him and then buy him out to get salary-cap relief:

Back in August, Lou Lamoriello traded overpaid veteran Brian Rolston to the New York Islanders in exchange for forward Trent Hunter. The Islanders acquired Rolston ($5MM/year) to reach the cap floor, while the Devils acquired Hunter simply to buy him out and get salary cap relief,a s they had no intention to keep him in their line-up this season. The Devils will be paying Hunter $666,667/year for the next four years, while he is currently playing for the Los Angeles Kings.

Do you know any other way to circumvent the salary cap, legally or not?

SOURCE: THE NHL2005 COLLECTIVE BARGAINING AGREEMENT.

—————————————

Fred,33, is a freelance sports writer and translator, as well as a Montreal Canadiens blogger on http://thehockeywriters.com and a baseball columnist on http://www.dobberbaseball.com/. Fred also joined HabsAddict.com in time for the 2011-12 season.

Follow Fred on Facebook and Twitter

Fred Poulin

Fred Poulin

Freelance translator/writer
A long-time Joe Sakic fan, Fred, 35, is a freelance sports writer and translator. Fred earned a Bachelor of Translation in 2002 at Laval University in Quebec City. He also writes on the Montreal Canadiens for HabsAddict.com and he is an associate editor and a baseball columnist on Dobberbaseball.com. He is also fluent in English, French and Spanish.
Fred Poulin

3 Comments

  1. Let’s go through the list.

    1 – yes, that “legally circumvents the cap.”  It’s also explicitly allowed in the CBA, so I don’t know how “bad” that really is since it was already contemplated.

    2 – yes, that “legally circumvents the cap.”  I’m also relatively sure no one expected it to be utilized like it has been.

    3 – this only “circumvents the cap” if (A) the player is assigned outside of the NHL before the end of his contract, or (B) the player retires early.  Either way, (A) and (B) only apply if the player is not on a “35 or older” contract; if he is, then he counts against the cap whether he’s in the NHL or not [though LTIR is still available].

    4 – yes, that “legally circumvents the cap.”  See #2 above.

    5 – this isn’t cap circumvention in any way, shape or form.  Players count against the cap if they’re on the Active Roster; whether they play or not is completely irrelevant to the cap.  In fact, a team could sign a player or players to an Amateur Try-Out and end up at full strength – and, the players on ATO’s don’t get paid, so they don’t count against the cap.

    6 – This isn’t cap circumvention.  It’s called a “contract slide” and is perfectly legal.  In fact, if the player isn’t playing in the NHL, he incurs no cap hit [which you should know from #2 and #3 above] – so how this suddenly constitutes “cap circumvention” [especially when the player isn't in the NHL] I have no idea.

    7 – this isn’t cap circumvention.  In fact, Article 26 expressly prohibits such arrangements, and provides for penalties for attempting to put together deals like you suggest.

    8 – This isn’t cap circumvention.  It’s a completely permissible transaction; one [trading Rolston] gets one team under the cap and another team over the floor, and the other [buying out Hunter] allows a team to shed a player it doesn’t want via a buyout – a perfectly permissible tool in the CBA [which still incurs a cap charge for doing so].

  2. Very good article Fred, and on point since I think a lot of journalists get all of these things but some fans may be wanting clarification. The one thing I would point out is #8 should maybe say “acquire a cheaper player w/ no intention…”

    I got what you were saying, but at first glance it seemed like just going out and acquiring a contract to buy it out could save cap space. Of course the key to that is shipping off a bigger contract, which everyone probably understands and you do state in the actual paragraph, but just a suggestion for the heading. Good read all around though.

Subscribe to our mailing list

* indicates required Email Address * Name Email Format html text mobile